If Parsifal does not have an accident, then he will earn $20,000, if he does, he will be reduced to earning only $4,000. The probability of having an accident is 0.02. His expected utility function isu(x) =xwherexrepresents his earnings.

1. Give the cdf of Parsifal's random wealth.
2. Give the expected value and the variance of Parsifal's random wealth.
3. Give Parsifal's expected utility, that is, giveE u(X).
4. What income,W, if delivered to Parsifal for sure, would give him the same expected utility.
5. In expected terms, how much could an insurance company make off of Parsifal byoffering him income replacement insurance?